Google and Facebook's digital advertising dominance is facing a strong challenge from the company


Bill Gates, who for years "dominated" the world's richest man, did not "give way" to Amazon's founder and CEO Jeff Bezos, who reached $141 billion ($927.2 billion) in June 2018, while Microsoft founder Bill Shorten. Gates' fortune is $92.5 billion ($608.2 billion) in June 2018. As of June 25, 2018, Amazon's total market value was about $807.05 billion ($530.67 billion), while Microsoft's total market value was about $755.95 billion ($497.1 billion). Jeff Bezos is the "winner" when compared to both types of data.


If Jeff Bezos wants to keep winning, it's not enough to keep staring at Microsoft, which needs to continue to work and lay out its core businesses like retail, cloud services and digital advertising online.In the case of digital advertising, Amazon must challenge Google and Facebook, the two biggest advertising "dominants" of the U.S. Internet, to grab market share.


Ad distribution


Overall U.S. advertising spending, including traditional and digital advertising, is expected to grow 6.6 percent to $220.96 billion ($145.3 billion) in 2018, according to data released by eMarketer, a leading market research firm. Television advertising revenue is expected to fall 0.5 percent to $69.87 billion ($459.4 billion), a downward trend expected to continue into 2022. However, the 2020 Summer Olympics in Tokyo and the U.S. presidential election will see a small rebound in television advertising revenue. Google's 2018 ad revenue is expected to grow 14.5 percent to $39.92 billion ($262.5 billion), while Facebook's 2018 ad revenue is expected to grow 16.9 percent to $21 billion ($138 billion). The two internet giants will account for 27.6 percent of the U.S. advertising market in 2018. In addition, the two companies expect the sum of advertising revenue to exceed television advertising revenue in 2019.


In 2018, Google and Facebook will capture 56.8 percent of U.S. digital advertising revenue, or 27.6 percent, according to eMarketer. However, the advertising models of the two companies are not the same. Google's main source of advertising revenue is the search advertising business, which is expected to generate $33.26 billion ($218.7 billion), or 72.6 percent of the U.S. search advertising market; Facebook's business is driven entirely by display ads. Revenue is expected to reach $21 billion ($138 billion), or 37.2% of the U.S. display advertising market.


This is Google (red) and Facebook (black) from 2016 to 2020, the presence or projected share of the U.S. digital advertising market


How big is Amazon's digital advertising business compared to the financial data of these two digital advertising businesses? The surest way to break the problem is to check Amazon's most recent earnings data. On April 27, 2018, Amazon announced its first-quarter results for fiscal 2018. Amazon reported net sales of $51 billion ($335.3 billion) in the first quarter, up 43% from $35.7 billion ($234.7 billion) a year earlier. Net profit was $1,629 million ($10.7 billion), up 125 percent from $724 million ($4.7 billion) a year earlier.


By service and business type, Amazon's net sales from online stores for the quarter were $26.939 billion ($177.1 billion), up 18 percent from $22.826 billion ($150.1 billion) in the same period in 2017, and the impact of currency movements, excluding exchange rate movements, was also 13% year-on-year. Net sales from brick-and-mortar stores were $4.263 billion ($28 billion) in the same period in 2017, while net sales from third-party seller services were $9.265 billion ($60.9 billion), up 44.4 from $6.438 billion ($42.3 billion) in the same period in 2017 , excluding exchange rate movements, was 39% Year-over-year, while net sales from subscription services were US$3.102 billion (approximately RMB20.3 billion), up 60% from US$1,939 million (APPROXIMATEly RMB12.7 billion) in the same period in 2017, and 56% YoY yoY excluding exchange rate movements Net sales from AWS cloud services were $54.42 ($357.86), up 49% from $3,661 million ($24 billion) in the same period in 2017, excluding exchange rate changes Net sales from other businesses were US$2,031 million (APPROXIMATEly RMB13.3 billion), up 139% from US$850 million (US$5.5 billion) in the same period in 2017, excluding exchange rate movements.


Looking at this set of data, you can see thatAmazon's main businesses include online retail, brick-and-mortar stores, third-party seller services, subscription services, and AWS cloud services。 The business data for "digital advertising" is not presented separately, but is included in Other Business.


Brian Olsavsky, Amazon's chief financial officer


"Advertising is still a bright spot, both in terms of product and financial. It remains a strong contributor to first-quarter profitability. It's now a multibillion-dollar project, and you can see that in our supplementary income disclosure, it's classified as other income, and it accounts for a large portion of other revenue. "So our philosophy is to continue to work on ways to better serve our customers and show them new products that they may not have seen," Brian Olsavsky, Amazon's chief financial officer, said on a conference call this quarter. It also helps new and old brands to reach customers. I think advertisers often have their own characteristics and are not the same as each other, but they have one thing in common: they want to reach out to our customers to raise awareness of their brand, to get them discovered and eventually buy their products. "


Seeking balance


Mark Mahaney, an analyst at ROYAL Canadian Capital Markets, asked two questions about Amazon's advertising. Mahani first mentioned that "other income" is $239 million (about 1.5 billion yuan), what kind of income is this? Can you talk about advertising revenue? On one side is a huge advertising revenue opportunity, especially high-margin, high-margin advertising revenue opportunities, on the other side is the perfect or best consumer experience, how does Amazon balance the two? "From an advertising perspective, I see sponsored ads in every search I do on Amazon, but I sometimes wonder if this dilutes the consumer experience.


On August 28, 2017, Amazon announced $13.7 billion for Whole Foods, an organic food chain.


"$239 million(about 1.5 billion yuan)Other revenue actually comes from the licensing services we provide to the companies we work with. We work with transportation companies and other technology companies. As the stock market rose in the first quarter, so did many of those companies. As a result, the returnon spree for our licensing services has also increased, which is an investment return. At the same time, the foreign exchange market has also seen significant growth due to changes in exchange rates and the weakness of the dollar. This shows a lot on the profit and loss account, but it's positive. Brian Olsavsky explains, "In terms of advertising, it's now a multibillion-dollar project, and it's growing very fast." Our main goal is to help our customers discover new brands and products. So we show sponsored products, and we try to show people what they can't see in normal searches. As we said, we are looking for a good balance. "


Brian Olsavsky says Amazon wants customers to benefit from new brands and product discoveries, and then Amazon wants sellers of new and old brands to reach those customers. Those advertisers are different, but the aim is to reach out to Amazon's customers, raise brand awareness, and let them discover them and eventually buy their products. So, "We take this very seriously,We've been balancing the help of ads and trying not to let ads compromise the user experience。 But you're right, they're always putting pressure on us, and we're going to deal with it from the customer's point of view."


Another question raised by Mark Mahaney is: As part of the ad, Amazon has a large inventory of ads in videos, and Prime Video is not charged, and Amazon doesn't allow ads to be placed in those videos, do you think it's also an advertising revenue opportunity? In response, Brian Olsavsky said, "With regard to video advertising, yes, over time, more ads may appear in our videos, but we have chosen not to do so now." "


Bezos iron heart to grab Google's digital advertising market share


Although the digital advertising business is not currently large enough to compete with Google, Amazon has embarked on a series of challenges. In mid-May 2018, Bloomberg News quoted people familiar with the matter as saying that Amazon had stopped buying a popular type of Google ads. The move affects top-of-the-line, high-sought advertising spaces in Google's search results, which retailers and e-commerce companies will bid for at high prices to show consumers colorful, rich-picture ads as they go online looking for running shoes, headphones and other products they want to buy.The loss of Amazon's customer is a rare setback for Google's cash-spand advertising business.Amazon's move has deepened the rift between it and Google and signalled its growing ambitions in the digital advertising market.


Where does Amazon's strength in digital advertising come from? In response, Monicom's marketing chief, Manas, said: "Prime has allowed Amazon to enter the digital advertising market. These data turn the service economy into networks that connect individuals and identities, similar to what Google achieves through Gmail and other login services. "In its view, Google has a user search preference, Facebook represents a community preference, and Amazon's user data reflects the willingness to buy."


Editing by Fang Limin and Zhao Lulu


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